Discussion paper

DP12924 Price-cost tests and loyalty discounts

We analyze, by means of a formal economic model, the use of price-cost tests to assess the competitive effects of loyalty discounts. In the model, a dominant firm enjoys a competitive advantage over its rivals and uses loyalty discounts as a means to boost the demand for its product. We show that in this framework price-cost tests are misleading or, at best, completely uninformative. Our results cast doubts on the applicability of price-tests to loyalty discount cases.


Calzolari, G and V Denicolo (2018), ‘DP12924 Price-cost tests and loyalty discounts‘, CEPR Discussion Paper No. 12924. CEPR Press, Paris & London. https://cepr.org/publications/dp12924